The Siren Song Of That One Big Customer…

In Greek mythology, the Sirens were three mermaids who lured sailors to their deaths by singing a song they couldn’t resist. As their reward, the sailors ended up crashing their vessels on the rocks. The vessel and their lives were lost.

I’ve seen a similar phenomenon more than once recently among the start up companies that I am familiar with. An opportunity to test your product offering goes  very well and conversations begin. Naturally, this is a nice boost to the ego of the start up. A lot of focus is placed on doing what ever is necessary to close “the deal” with the big company.

That’s understandable. Getting a deal done with a big company provides validation, revenue and perhaps an easier path to raising capital. It’s also very risky. Think about the psychology and implications of the start up and big company deal:

  • It means everything to the start up. If you’re the early stage company in this position you’ll do a lot of things to get a deal done. Will it be a deal that moves you along the most effective path for your company?
  • You’ll often be asked not to deal with key competitors of the large company. This removes the most critical element of “skin in the game” for the larger company. It also puts the start up in a “no win” position, removing key negotiating leverage that can keep the counter-party honest.
  • Even completing a deal and working with a behemoth can reduce your leverage with later customers. If you are perceived as a captive provider or too closely aligned with your larger partner it can affect the willingness of others to work with you. It can even affect your acquisition options if you are unduly dependent on one large customer.

The solution? Always have a secondary option active and on the path to close. This will provide you with leverage and intelligence on what other options could work for you. Otherwise you might find your ship against the rocks with holes in the bottom of your boat…..